Will Next-Gen Consoles be Substantially Cheaper?

I’ve been thinking about how the current console wars are, and the way things are shaping up both from an economics and technology standpoint. And I’ve come to the conclusion that the next generation of video game consoles will be substantially cheaper, for a number of reasons…

1. Increased competition (iPhone, Zune platforms) from non-traditional areas. I can play Rock Band on my Xbox 360 or my iPhone. Granted the experience is nowhere near the same, but its still something to worry about in terms of how gamers will allocate their time playing games – there are more platforms and more games being made but still only 24 hours in a day.

2. TV’s are stuck at 1080p/60Hz, while something like the Radeon 5000-series can draw 60fps at 1920×1080 in most games, let alone what will be available around the end of 2011 replacement time frame (able to render 3072×1920 at 60fps). CPUs will become more advanced but are likely to stay RISC (IBM’s PPC chips) and clock speed will go up. Until TVs move to 4K (4096×2560) and possibly faster frame rates available at input (120Hz) then the video output of the consoles is limited to current HD resolution.

3. Increased focus on margins earlier in the product cycle – Sony and MS wont want to sell the consoles for huge losses (e.g. PS3 initially cost about $800 and sold for $500-600). I would expect launch consoles to sell for $400-500 and be down to $250-300 within 18-24 months (one internal hardware refresh). The lack of cutting edge hardware might help in keeping prices down. What a $100 GPU can do in 2011 might be sufficient for the console, instead of a $200 GPU. And the same goes for the CPU. There is also something to be said about going smaller and more efficient in terms of power usage. Larger storage amounts should be trivial (2.5″ HDDs are now very cheap) and putting 2GB of storage on the device for an OS should be sufficient.

4. Advanced third-party fabs. Global Foundries will have bulk 28nm fabrication processes online in mid-2011 and could play a big role in not only producing the GPU for one or more of the consoles. There is even an outside chance of seeing Nintendo try and put the CPU and GPU on the same piece of silicon – something along the lines of the AMD Fusion chip but with a PPC or ARM-based core and a GPU that is capable of 720p/60 fps. This might trigger licensing issues going down the PPC road but that would ensure backwards compatibility.

5. The big feature will be physical interaction like we saw for the Wii. While this is novel, its not too terribly expensive (see the Wii). Compare this to the initial cost of Bluray, backwards compatibility and the Cell CPU for Sony, and HD graphics for both consoles. MS didn’t have any other high-cost features but the high cost of poor engineering and the Red Ring of Death means they’re eating costs they could have spent on making the consoles cheaper quicker. They might be more inclined to be a bit more conservative on power usage and heat and make sure the console is reliable.